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KBE

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Rung Rung

on 15 November 2012

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Transcript of KBE

Amy Read
Torben Rieder
Matt Ziegler
Mimi Zhu
Piyanant Porncharoensup
Rajkrishnan Vijayakumar Developing Knowledge-Based International
Business in Emerging Economies Embraer, S.A. Turboprop Engines Biofuel Engines Embraer Overview
Embraer World Market Outlook 2012-2031
China Market Outlook
Technological Capability 1
Asia Pacific Market Outlook
Technological Capability 2 Presentation Guide Traffic in the Asia Pacific region (incl. China) is forecast to grow the fastest with demand for new 61- to 120-seat aircraft eventually exceeding that of Europe
Asia expected to be the center of gravity for aviation due to:
Economic growth in emerging markets
Rising middle class in developing nations
Increased competition & search for efficiency
Estimated to be the largest RPK market by 2031 Embraer World Market Outlook 2012 – 2031 1980: Chinese aviation’s present regulatory body, the Civil Aviation Administration of China (CAAC) became independent from Chinese Air Force
2005: Dr Lui Fang, CAAC Director of International Affairs Division said “China will proceed with international air transport liberalisation in a positive, gradual, orderly and safeguarded manner. ”
Through 2008: CAAC has entered into 110 bilateral aviation liberalisation agreements
Embraer’s 2012 China Market Outlook report:
Chinese government to construct 48 new airports, majority regional
Chinese government to implement new subsidies for regional airports
Examples of subsidiaries include exemption on import duties,
value-added tax for regional aircraft spare parts, and exemption of airport construction fees allocated to regional flights Liberalisation of Chinese Aviation Improvement in turboprop engine technology
Fuel efficient
(25%-40% less than comparable jet engine)
environmentally beneficial (50% less CO2 emission)
Pratt & Whitney Canada PW127E

Usage
Small and medium regional planes New Turboprop Engine Technology Canadian affiliate of P&W (USA)
Specialised in small engines for regional planes
Invests more than $400M in engine R&D
Serves more than 700 Airlines

>> Valuable partner for Embraer to equip new
small regional planes with turboprop engines
>> Complimentary capabilities for new Embraer
turboprop plane
>> Serve new markets in Asia-Pacific JV Pratt & Whitney Source: Pratt & Whitney Canada Access complimentary resources and existing capabilities
New capabilities development is faster and cheaper
Transfer knowledge to serve new markets
More reliable than doing it alone
Support in unknown environment
Reducing investment risks Benefits of Joint-Ventures Source: Beamish, P. and Lupton, N., 2009. Managing Joint Ventures. Academy of Management Perspectives, 23 (2), p.75-94 “Emerging markets will lead growth in air transport demand. Over the next 20 years, China will be the fastest-growing market, with an average annual [revenue passenger kilometers] RPK growth rate of 7.5%”
For naturally resource-rich Xinjiang province, Chinese government has set goal of turning province into "national showcase for large-scale use of renewable energy resources"
“Traffic in the Asia Pacific region, including China, is forecast to grow the fastest with demand for new 61 to 120-seat aircraft eventually exceeding that of Europe. Airlines in China are expected to purchase 975 of these jets, about 13% of global orders.”
Market gap for regional jets* in China
*Where regional jets are defined as having ~50-120 seats and 2,000+ nautical mile range capabilities
Currently, Embraer’s Chinese sales do not include planes with seating capabilities below 120 passengers, and larger jet flights in China consistently experience below-capacity flights. Chinese Market Outlook Embraer Product Line Revenues Focus on short to medium range flights
Emerging Regions make up 55% of Embraer's revenues
Asia Pacific (incl. China) accounts for 23% of this Current Markets CHINA What Does This Mean for Embraer? China presents a favourable regulatory and economic environment particularly for expansion of Embraer regional jet sales Global Trends and Future Constraints Dwindling world petroleum supply
Increased emissions regulations A Sustainable Way
Forward for Embraer? 2011: Global fuel standards bodies approved commercial use of biofuel.
February 2012: “Market value of Chinese aviation biofuel will exceed 120 billion yuan ($19 billion) by 2020 and 30 percent of the [China]'s jet fuel will come from biofuel by then”
March 2012: “Airbus, Boeing and Embraer today signed a Memorandum of Understanding… to work together on the development of drop-in, affordable aviation biofuels.” Launch new line of regional jets with 50-80 seat passenger capability within Chinese market
Fills gap in Chinese market for smaller passenger planes
Poises Embraer to meet growing Chinese demand for regional jets
Utilises existing company technology
Regional line to be supported by new engine and fuel source Matching Capabilities Development
with Future Constraints 2009: Continental Airlines – Successful test flight using aviation biofuel made from Jatropha and Algae (AINonline, 2009)

2011: Air China – Successful test flight using aviation biofuel made from Jatropha (China Daily, 2012)

Engine used: CFM 56-7 Successful Test Flights Using Biofuel CFM International – Company that is leading the innovation on Aircraft Engines that run on biofuel

Foster a Strategic Alliance with CFM International
To Facilitate access to CFM’s valuable resources (Klotzle, 2002)
To facilitate transfer of knowledge and capabilities during the partnership (Klotzle, 2002)
To improve Embraer's overall performance through joint actions (Gordon, 2003) CFM International “A risk sharing partnership with suppliers necessarily involves a participative sharing in the project, with rights to future sales income of products. The partner relies on the commercial success of the project to receive the total or part of his share for the activities and/or products delivered. ”(Figueiredo,Silveira and Sbragia, 2008) Risk Sharing Partnership Concentrate on its core competencies
Reduce development time through shorter R&D cycles
Reduce Investments and dependence on loan
Knowledge transfer takes place with more intensity Why Risk Sharing Partnership ?
(Figueiredo et. al, 2008) Why Risk Sharing Partnership? Thank You Any Questions? Daily Passengers Each Way Number of Domestic Routes by Passenger Volume Source: Civil Aviation Administration of China (CAAC) ASIA PACIFIC By 2031, Asia Pacific (and China) will be the largest market in the world, accounting for 34% of world RPKs.
Asia Pacific region projected to experience a strong overall 6.1% RPK and 3.2% GDP growth rates over period between 2011 – 2030
Embraer foresees world demand worth USD315 billion for aircraft in the 30-to-120 seat capacity segment.
This segment important in allowing airlines to accommodate market volatility, complementing larger aircraft operation with proper capacity, whilst allowing them to open new low-density markets, such as those represented by emerging markets in Asia Pacific.
This seating capacity segment is well-suited to turboprops. Asia Pacific Market Outlook 2010 – 2031 RPK (Billion) by Region Projected Traffic and Economic Growth (2010-2031) Source: Global Insight, The Economist, Embraer Transaction Costs and RSP Asia Pacific Market Outlook 2010 - 2031 Turboprops also favoured for addressing high oil prices, and growing focus on noise and emissions reduction in short-haul markets Asia Pacific Market Demand for Aircraft 2012 – 2031 Developing Knowledge-Based International Businesses in Emerging Economies 15 November 2012 Developing Knowledge-Based International Businesses in Emerging Economies 15 November 2012 Developing Knowledge-Based International Businesses in Emerging Economies 15 November 2012 Developing Knowledge-Based International Businesses in Emerging Economies 15 November 2012 Developing Knowledge-Based International Businesses in Emerging Economies 15 November 2012 Developing Knowledge-Based International Businesses in Emerging Economies 15 November 2012 Developing Knowledge-Based International Businesses in Emerging Economies 15 November 2012 Developing Knowledge-Based International Businesses in Emerging Economies 15 November 2012 Developing Knowledge-Based International Businesses in Emerging Economies 15 November 2012 Developing Knowledge-Based International Businesses in Emerging Economies 15 November 2012 Developing Knowledge-Based International Businesses in Emerging Economies 15 November 2012 Developing Knowledge-Based International Businesses in Emerging Economies 15 November 2012 Developing Knowledge-Based International Businesses in Emerging Economies 15 November 2012 Developing Knowledge-Based International Businesses in Emerging Economies 15 November 2012 Developing Knowledge-Based International Businesses in Emerging Economies 15 November 2012 Developing Knowledge-Based International Businesses in Emerging Economies 15 November 2012 Developing Knowledge-Based International Businesses in Emerging Economies 15 November 2012 Developing Knowledge-Based International Businesses in Emerging Economies 15 November 2012 Developing Knowledge-Based International Businesses in Emerging Economies 15 November 2012 Developing Knowledge-Based International Businesses in Emerging Economies 15 November 2012 Developing Knowledge-Based International Businesses in Emerging Economies 15 November 2012 AIN online. 2009. Orders drop at CFM, but LEAP-X goes on. [ONLINE] Available at: http://www.ainonline.com/aviation-news/paris-air-show/2009-06-14/orders-drop-cfm-leap-x-goes. [Accessed 10 November 12].
Air China, 2011. Air China Launches China's First Test of Biofuel Flight. PRNewswire Online [online] 28 October. Available at: <http://www.prnewswire.com/news-releases/air-china-launches-chinas-first-test-of-biofuel-flight-132769738.html> [Accessed 11 November 2012].Airbus, 2012. Airbus, Boeing, Embraer collaborate on Aviation Biofuel Commercialisation. [press release], 12 March 2012, Available at: <http://www.airbus.com/presscentre/pressreleases/press-release-detail/detail/airbus-boeing-embraer-collaborate-on-aviation-biofuel-commercialisation/> [Accessed 7 November 2012].
Ballentyne, T., 2005. Liberalization: China is committed, says CAAC chief. Orient Aviation Online, [online] August. Available at: <http://www.orientaviation.com/section.php?currenyIssue=I20070907120906-yMh28&currentSection=news&currentArticle=A20080730090717-b0Mip&> [Accessed 13 November 2012].
Beamish, P. and Lupton, N. (2009) Managing Joint Ventures. Academy of Management Perspectives, 23 (2), p.75-94.
British Petroleum, 2012. BP Statistical Review of World Energy June 2012. [pdf] Available at: <http://www.bp.com/assets/bp_internet/globalbp/globalbp_uk_english/reports_and_publications/statistical_energy_review_2011/STAGING/local_assets/pdf/statistical_review_of_world_energy_full_report_2012.pdf> [Accessed 10 November 2012].
China Daily. 2012. China to cultivate biofuel use. [online] Available at: <http://www.chinadaily.com.cn/cndy/2012-02/29/content_14716770.htm> [Accessed 10 November 12].
Cranfield University, 2011. Analysis of China’s liberalisation policy with respect to international air transport. [pdf] Available at: <http://www.garsonline.de/Downloads/100701/Chrysal_Zhang_Cranfield%20University_GARS_Paper.pdf> [Accessed 31 October 2012].
Embraer, S.A. (2011) Annual Report 2011. [report] São José dos Campos: Embraer, S.A.Embraer, S.A. (2011) Market Outlook 2012-2031. [report] São José dos Campos: Embraer, S.A., p.1-74.
Embraer, S.A., 2011. China World Outlook 2011 – 2030. [pdf] Available at: <http://www.embraer.com.cn/focus_on_china/outlook/Market_Outlook_English.pdf> [Accessed 10 November 2012].
Figueiredo P., Silveira, G. & Sbragia, R. 2008. Risk Sharing Partnership With Suppliers: The Case of Embraer. Journal of Technology, Management & Innovation, [Online]. 3/1, 27-37. Available at: http://www.jotmi.org/index.php/GT/article/viewFile/art70/436 [Accessed 10 November 2012].
Gordon, S. 2003. Computing information technology: the human side. USA: Idea Group Publishing.
Klotzle, M. 2002. Alianças Estratégicas: Conceito e Teoria. S. Paulo: RAC.
Pratt & Whitney Canada (2011) PW127. [online] Available at: http://www.pwc.ca/en/engines/pw127 [Accessed: 14 Nov 2012]. References Developing Knowledge-Based International Businesses in Emerging Economies 15 November 2012 Demand for Aircraft 2012 – 2031 Developing Knowledge-Based International Businesses in Emerging Economies 15 November 2012 By 2030, Asia Pacific and China will be the largest market in the world accounting for 36% of world RPKs.

Over the next 20 years, China will be the fastest-growing market, with an average annual RPK growth rate of 7.5%.

Airlines in China are expected to purchase 975 of new 61 to 120-seat jets, about 13% of global orders.

Airlines in China have recognized the success of Embraer’s commercial aircraft. Market Outlook 2012-2031 Developing Knowledge-Based International Businesses in Emerging Economies 15 November 2012
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